Hospitals ease off in 'sick tax' battle

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After years of fighting the hated "sick tax," Utah hospitals are working with legislative leaders to craft a new levy aimed at helping pay for treating Utah's poor.

The change would bring in as much as $75 million in new funding, more than two-thirds of it in federal dollars, to cover some of the costs for treating Medicaid patients.

"It's not something we really want to do, because it's not necessarily our responsibility to fund the Medicaid program. It's a federal and state program," said Joe Krella, president of the Utah Hospital Association. "But we recognize the financial and budgetary constraints the state has and the Legislature is grappling with and we're willing to come forward with an assessment on the hospitals."

To get the federal money, the Legislature would have to impose a new tax on hospitals of about $23 million, but Krella said insured patients wouldn't be stuck paying that amount.

That's because the hospitals hope to arrange it so the tax is paid after the providers have already received the Medicaid payments, meaning the $23 million paid to the state would come out of the reimbursement dollars from the feds. The remainder would help bolster the rate hospitals are paid to care for Medicaid patients.

Should it pass, the increase in the state hospital tax would come after years of effort by the hospital association to beat back proposals to raise the levy, which they denounced as a "sick tax," paid by the people who end up in the hospital.

But the change of heart came after the Legislature made deep cuts to the Medicaid payments. That rate was cut 15 percent in the current year, and hospitals are facing an additional 17 percent cut next year.

In his budget proposal last week, Gov. Gary Herbert did not include any funding to soften those cuts, nor did he recommend adoption of the hospital tax increase.

If the new hospital tax is adopted, it would restore a portion of those cuts, but the reimbursement would still be about 10 percent lower than it was two years ago, Krella said.

Steve Perlin, a Chicago-based executive with Health Management Associates, a consulting company that the hospital association has hired, estimates that half the states have done what Utah's hospitals are advocating, and several more are looking at making the change.

Perlin's group is working closely with federal regulators and state health officials to make sure the program is structured in a way that would be approved by the federal government.

State lawmakers have mixed feelings about the hospitals proposal, fearing that it might be little more than a state grab for federal dollars that will exacerbate the federal debt.

"There's a part of me that says it makes sense to bring back some of the federal tax dollars we pay back into the state to pay for some of our health and human services challenges," said House Speaker Dave Clark, R-Santa Clara. "At the same time, Washington spending is so out of control, are we helping or hindering that [problem]?"